Companies are growing in their influence over society – to the point where some transnational companies are now more economically powerful than certain countries. The shift toward smaller government through greater outsourcing of public services in some parts of the world has bolstered this trend. In countries where Government is failing to provide key services global businesses are increasingly filling in gaps in provision.
At the same time, there is growing public mistrust in the ability of both big business and government agencies to truly serve the needs of society – particularly in the US and Europe, due to conflagrations such as 2015 Volkswagen’s emissions scandal and high-profile corporate tax evasion scandals.
Social and environmental problems are causing more people to question short-termism and the need to create shareholder value. Many businesses are therefore keen to demonstrate their social value and accountability, and act as catalysts for community development and co-creation projects.
In response, new types of business are emerging, including Benefit Corporations, which have been brought into being by new legislation that allows companies to be set up for the purpose of benefitting society as well as their shareholders.
Last updated: 23 November 2015
Power of businesses to create impact
- If Wal-Mart were a country, its revenues would put it on par with the GDP of the 25th largest economy in the world, surpassing 157 smaller countries. 1
- Alibaba, a Chinese e-commerce company, has over 24,000 employees and in 2013, two of Alibaba’s websites handled $240 billion in sales. That’s double the size of Amazon, triple the size of eBay, and one-third more than the two competitor companies combined. 2
- There is an increase in the consolidation of big businesses in certain global industries. At all stages of the food system – from seeds, to food processing, retail food sales – market power is concentrating in an ever smaller number or corporate firms. One example is the beer industry: there were 22 major beer makers in 2000. A series of mergers, takeovers, joint ventures and majority purchases whittled that down to just four (Anheuser-Busch InBev, SABMiller, Heineken and Carlsberg) in 2012 and might further go down to 3 as Anheuser-Busch InBev announced its plans to bid for SABMiller in 2015. 3
The need to build trust
- Overall public trust in government has declined from 52% in 2011 to 48% globally in 2015. Trust in business plateaued over the same period – it stood at 56% in 2011 and 57% in 2015. 1
- Although trust in business has steadily rebounded from the implosion it suffered during the 2008/09 global financial crisis, memories of the meltdown and scandals that regularly play out in the media reinforce strong distrust in business as its own regulator. 2
- It was revealed that Amazon's main UK subsidiary paid just £3.2m in tax in 2012, despite overall UK sales of £4.2bn. 3 In 2015, six banks (Bank of America, Citicorp, JPMorgan Chase, UBS AG, Barclays and Royal Bank of Scotland) guilty of colluding to currency-rig the foreign exchange market were ordered to pay $5.8 billion. 4
Shareholder value first? Businesses as catalysts for change
- In 2011, only around 20% of the Fortune 500 reported their performance on environmental, social and governance issues. That had jumped to 57% by 2013, and similar growth trajectories can be seen among S&P 500 firms. 1
- Sustainability reporting has become a listing requirement on several stock exchanges in non-OECD countries. An example is BM&F BOVESPA, the São Paulo Stock Exchange, which launched its own report and policy before the 2012 Rio+20 Conference. Furthermore, India is the first country to mandate a minimum 2% spend on corporate social responsibility initiatives. 2
- The for-profit social enterprise sector is growing as new tools such as B Corporations, social impact bonds and ‘hybrid’ entities such as L3Cs (Low-profit Limited Liability Company) emerge. By 2013, for instance, over US$1.3 billion in funds had gone into impact investing. 3
- Partnerships between public and private actors are becoming more widespread. Take Brazil’s ProUni: it aims to promote access to tertiary education for low-income students with the support of private tertiary institutions (incentivized by tax exemptions) and the Ministry of Education. In the past ten years, the programme has provided more than 1.8 million scholarships. 4
- 1. Global Reporting Initiative (2013). Carrots and Sticks - Sustainability Reporting Policies Worldwide - Today's Best Practice, Tomorrow’s Trends
- 2. The Guardian (2014, Aug). India's new CSR law sparks debate among NGOs and businesses
- 3. Huffington Post (2013). Opening the Curtain on the New 2.0 Era of Impact Investing
- 4. World Economic Forum (2014). Creating New Models Innovative Public-Private Partnerships for Inclusive Development in Latin America, pg 18.
- In future we could see a wider variety of business forms and models, which could lead to different expectations of what businesses are and the role they play in people’s lives. As the global economy shifts, companies that are regionally dominant now could become globally dominant in future.
- The tools for creating value, and value creation itself, could become more dispersed due to the internet, 3D printing and regulations that encourage social enterprise. Some companies are already using open innovation to solve complex challenges they cannot tackle alone. In time, forming and disbanding disparate teams for specific tasks may even be cheaper than running a large business, perhaps leading to ‘networked businesses’ that form and un-form according to need.
- More collaboration will be needed in order to tackle the complex sustainability challenges that lie beyond the scope of any one organisation. One example of this is the Sustainable Apparel Coalition, a pre-competitive collaboration designed to overcome collective barriers to sustainability, which was launched in 2011 by business such as Walmart, Nike, Target, JC Penney, Levi’s. 1